IPOs Performance In 2011 And Trend In 2012

Initial Public Offerings – which are nothing but offers by a company to sell its stock to the public at large – are important not merely to the companies but also to the public and the underwriters to the IPO. Each has a stake in the success or failure of the IPO; but usually it is the interests of the small investor that are more at stake.

Given the overall market economy of recent years, a look into the prospects for IPO’s in 2012 bears some examination.

The immediate past is of some consequence in any projection. So we shall devote a little time to what happened in 2011 in regard to IPO’s.

IPO’s in 2011

The year 2011 proved to be a watershed for small investors. A large number of small investors are reported have suffered heavy losses on account of IPO’s alone.

The IPO market started off with very heavy expectations in 2011. Much of it was because of the rosy predictions that India’s GDP would grow at 8% during the year. About a trillion dollars of investments were expected in the field of infrastructure development. A lot of economic activity was expected and the economy was expected to be buoyant. The expectations about the GDP growth proved to be off the mark, however. The expected investments did not materialise. And the economy fell way short of expectations.

There were as many as 39 public issues of shares through IPO’s in 2011. The shares were aggressively priced leaving little room for short term gains in the market. Shares from just 9 of the issues are commanding a market price greater than the issue price; the other 30are being quoted well below the issue price. The average rate of return to investors was -13% on NSE and a whole lot of investors suffered significant losses.

Though nearly 100 global companies were expected to make initial public offers and follow-on public offers during the financial year 2010-11, just 50 companies made IPO’s and follow-On Public Offers and thus had their shares listed on the country’s stock exchanges. Some of them like Coal India, Fineotex, and Gravitas India proved to bring cheer to investors; but about two-thirds of the IPO’s proved to be a regrettable nightmare for the investors – particularly the small, inexperienced investors; even big names like NTPC, NMDC and NHPC failed to make any positive impression. During the year starting January 2011, the shares of three companies did very well in the market after listing. But the year has been on the whole a rather unsatisfactory one for stock markets in general and IPO’s in particular.

The travails of the small investors in the IPO market of 2011 suggest that the role of regulatory agencies has to be more aggressive to protect the interests of the small investors. Liberalisation has its advantages alright; but the players in a liberalised market economy do not always play fair. Often there is a lot of hype surrounding IPO’s; and most of the hype is calculated to help the companies making the IPO’s and the underwriters. It is only the watchdog regulatory bodies that can ensure that the playing field does not prove to be a minefield for the unsuspecting investors.

What does 2012 Have in Store for IPO’s?

Given the easing interest rates, 2012 is expected to prove better for industrial performance and for stock market performance.

A number of good companies in the field of health care, energy, and technology launched the IPO’s so far during the year. The attempts of Facebook to go public in US has inspired many Indian companies relating to e-commerce to go public and make initial public offers. Flipkart, GroupOn, Homeshop18, Infibeam, and Jabong are among the aspirants. Vodafone is believed to be having second thoughts about its planned IPO because of the uncertainties involved in the spectrum pricing consequent upon the recent events relating to the auction of 2G Spectrum. On the whole, some 17 IPO’s are reported to have been called off.

Despite the easing of interest rates, the other indicators of economic activity do not seem to be favourably disposed to any significant industrial and economic growth in India. The growth rate is also expected to fall short of the projections. The global economic meltdown is expected to hit the Indian economy also very hard. The news of falling rupee in recent days buttresses our opinion.

We do not expect IPO’s to perform any better in 2012 than they did in 2011 despite the encouraging picture that emerged earlier in the year. The small investor is, in our considered opinion, better off keeping away from the IPO’s and sticking to the tried and trusted instead in 2012.

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“I dare do all that may become a man. Who dares more is none”. And all, may be. It may be the vigor. Or the spirit. Or the courage to avoid being “politically correct” or bent. And, ban all averse with immaculate overture of graciously fathomable words firm in views. Subtle. Justifying the undying conscience. Values. Knowledge. And, dares to stay true. True to own. True to the world. And, to the words. With a dream in eyes it exists. In you. In me. In all. The sprite that never shies away. The spirit that never dies!